中國在中國債券市場(chǎng)的綠洲情景中銀行業(yè)的表現(xiàn)如何

1、Global Research7 September 2020China BanksHow would banks fare in our Oasis scenario for Chinas bond market?Chinas bond market may see substantial growth amid disintermediationAs elaborated on in a UBS Q-Series report on Chinas bond market (link), we expect the onshore bond market to see substantial

2、 growth in the next decade. In our Oasis scenario, the bond market is projected to grow at a CAGR of 10% by 2030E. Compared to the status quo, our Oasis scenario implies a long-term disintermediation process in which loans as a share of total debt (loans + bonds) decline from 65% today to 52% by 203

3、0E, while banks market share in bond investment falls from 63% to 53%, grabbed by non-bank financial companies such as brokers and asset managers.Negative for bank revenues due to forgone market share and lower NIMFor banks, we believe the direct impact from disintermediation would be a loss of busi

4、ness volume, with more corporate clients opting for bond financing instead of loans, compounded by non-bank financial companies grabbing more market share. In addition, with slow loan growth due to substitution, the mix change of interest-earning assets would also likely be dilutive to NIM level. We

5、 estimate that total interest income in 2030E could drop by Rmb1.3trn compared to the current baseline, if our Oasis scenario were to be fully realised.Uplift in non-interest income unlikely to fully offset banks lost incomeIn the meantime, we think a more developed bond market could be positive for

6、 banks wealth/asset management and bond underwriting businesses, both of which would generate more non-interest income. However, we think such revenue uplift would not be enough to offset the forgone revenues due to lower business volume and we estimate that the banking sector would see 2030E profit

7、 pool drop 9-13% in our Oasis scenario vs our Mirage scenario, which assumes a continuation of the status quo.Lower loan growth with less capital consumption not necessarily bad for stocks Nevertheless, we do not think such a disintermediation process would necessarily be a bad thing for bank stocks

8、. Slower loan growth may help banks reduce inefficient credit allocation, while less capital consumption could help banks achieve a healthier and more sustainable growth path in the long run. With more business shifted off the balance sheet, banks would also be less exposed to potential credit risks

9、. Among banks, we think SOE banks serving more large corporates could be under more pressure, whereas JSBs are likely to be more resilient amid the challenges.Banks, Ex-S&LChinaEquitiesMay Yan Analyst HYPERLINK mailto:may.yan may.yan+852-2971 7157Kelvin Chu, CFAAnalyst HYPERLINK mailto:kelvin.chu ke

10、lvin.chu+852-2971 7397Alex ZhouAnalyst HYPERLINK mailto:alex-huanan.zhou alex-huanan.zhou+852-3712 4218Edward Du Associate HYPERLINK mailto:edward.du edward.du+86-21-3866 8780Alex Ye Analyst HYPERLINK mailto:alex.ye alex.ye+852-3712 3594Chloe WangAssociate HYPERLINK mailto:chloe.wang chloe.wang+86-2

11、1-3866 8859 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 19. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should

12、be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Executive summaryBank loans have remained the primary source of Chinas debt financing channel in

13、the past decade, especially in light of the clampdown on shadow banking activities in recent years. With the government promoting more direct financing, however, we think this could change going forward. Given Chinas relatively low starting point compared to global peers and the currently low penetr

14、ation of the private sector in the bond market, we think bond financing may play a bigger role in Chinas debt growth in the next decade.In the UBS Q-Series report on Chinas bond market (link), we expect the onshore bond market to see substantial growth in the next decade, partly driven by increased

15、overseas inflows due to the inclusion of China onshore bonds into global indices, improving market access, widening yield gap between China vs developed markets, deregulation of foreign rating agencies, as well as enhancing market liquidity and risk management solutions.In particular, in our Oasis s

16、cenario we project the bond market to outgrow bank loans at a CAGR of 10% through 2020-30E with non-bank financial companies such as brokers and asset managers taking a bigger market share in the meantime. Compared to our Mirage scenario, which essentially assumes a continuation of the status quo, o

17、ur Oasis scenario implies a long-term disintermediation process amid which the banking sector would play a smaller role in fuelling Chinas debt growth in the next decade.If such a scenario were to be fully realised, it could have meaningful implications for the banking sector in the long run, which

18、we attempt to discuss in this report with a sensitivity analysis of the financial impact by 2030E. Below we summarise our key conclusions; please read the rest of the note for greater detail.Figure 1: Scenarios of loan vs bond market sizes and implications for banksBond financing may play a bigger r

19、ole in fuelling Chinas debt growth in the next decade.The Oasis scenario in our Q-Series report implies a long-term disintermediation process, with bond financing becoming a substitute for some bank loans.2019Oasis2030E scenariosSemi OpenedLocal HeroesMirageBond market size (Rmb trn)8524221519618210

20、-year CAGR (%)10.1%8.7%7.7%6.9%Outstanding loans (Rmb trn)15226629435436810-year CAGR (%)4.5%5.5%6.2%6.7%Outstanding loans and bonds as of total GDP (%)239%250%250%250%250%Market share of banks in bond market (%)63%53%55%60%63%On-BS bond investment (Rmb trn)3995889291Off-BS bond investment (Rmb trn)

21、1434302524Source: UBS estimatesMore direct financing in substitution for bank loans: More corporates may seek direct financing via the bond market, in particular large state-owned companies. As a result, banks may lose some clients and could encounter pressure on loan growth going forward.Pressure o

22、n overall asset y ield due to a change in asset mix towards more on-BS bond investments versus lower loans: On-BS bond investment is an important component of the interest earning assets (IEA) of commercial banks, and the yield of bond investments is usually lower than that of loans. Therefore, weex

23、pect banks net interest margin (NIM) to face pressure as on-BS bond investment accounts for a larger share of banks interest earning assets.Development of non-interest income business related to the bond market, such as bond WMPs and underwriting business: Development of the bond market could also b

24、ring an opportunity for banks to transform their business model and put more emphasis on non-interest income business. For example, banks (or the wealth management subsidiaries of some banks) could issue more wealth management products (WMPs) invested in the bond market. In addition, banks could als

25、o benefit from higher underwriting fee income from more bond issuances.Taking the above impacts together, we expect a negative impact on banks total profits. To measure the total impact of bond market development on commercial banks in the next decade, we use our Mirage scenario as the status quo wi

26、th limited progress for bond market development, and consider a comparison between our Oasis and Mirage scenarios to be a rough estimate of the impact on commercial banks. We would expect the banking industry to see a Rmb1.2trn negative impact on revenue in our Oasis scenario vs our Mirage scenario.

27、Assuming stable credit cost and cost-to-income ratio, we would expect the banking sector profit pool to be 9-13% lower in 2030E if our Oasis scenario were to be realised. Notably, we expect the impact to vary between different types of banks, with state-owned banks likely taking a bigger hit due to

28、large corporates switching to bonds while joint-stock banks fare more resiliently.That said, it could be positive for the healthy and sustainable growth of the banking industry in the long term. A slowdown in loan growth could relieve the pressure on the funding side and capital requirements for ban

29、ks. In addition, the development of capital-light non-interest income business, such as wealth management business, could bring more stable and balanced profits for banks. Therefore, we expect a more self-sustainable growth of the banking industry in the long term, even if the growth may slow down s

30、omewhat.Compared to the status quo, losing market share to bond financing could lead to lower interest income for banks which we think cannot be fully offset by an uplift in fee income from more WMP and bond underwriting business.However, with slower loan growth and less capital consumption, we thin

31、k this may help banks deliver more sustainable long-term growth, and thus is not necessarily a negative for shareholders.Figure 2: Assuming the difference between our Oasis and Mirage scenarios measures the impact of financial disintermediation on banks, total negative impact on banking industry rev

32、enue could be Rmb1.2trn in 2030E Impact from IEA lossLarge JSBs Other TotalbanksbanksImpactfrom NIMchange (Oasis)Impactfrom NIMchange (Mirage)Large banksOasisJSBsvsMirage OtherbanksTotalLargebanksJSBsOtherbanksTotalLargebanksJSBsOtherbanksTotalInterestOn-B/S amount of loans and bonds investment (Rmb

33、 trn)1696612135618775145407incomeRevenue impacts (Rmb bn) -314-171-443 -927-210-40-12-2635310366-577-221-458-1, 256WealthBond WMPs AUM (Rmb trn)15194391417334managementRevenue impacts (Rmb bn)921162323182103212061013325BondBond issuance in 2030E (Rmb trn)3112548249436underwritingRevenue impacts (Rmb

34、 bn)157602424211846181823915660Total revenue impacts (Rmb bn)-528-193-449-1, 171Total profits impacts (Rmb bn)-179-54-108-341Source: UBS estimatesFigure 3: implying an 9-13% profit negative impact for the banking industry in 2030ENet profits (Rmb bn)Figure 4: Joint-stock banks seem to be more resili

35、ent while small banks may see the most negative impact4000300020003,74310-yearprofit CAGR7%5%3%Rmb bnNet profits in 2030EProfit impact (%)Net profits in 2030EProfit impact (%)Net profits in 2030EProfit impact (%)Large banks2,156-8%1,785-10%1,473-12%JSBs799-7%662-8%546-10%Other banks789-14%653-17%539

36、-20%3,1002,557100002012 2014 2016 2018 2020E2030E 10-year CAGR= 7% 10-year CAGR= 5% 10-year CAGR= 3%Source: CBIRC, UBS estimatesSource: UBS estimatesMore bond financing ahead?While more direct financing has been advocated by the government for many years, bank loans have remained the primary financi

37、ng source for the real economy in China, with corporate loans accounting for 64% of total corporate financing in 2019 HYPERLINK l _bookmark0 (Figure 5), despite the percentage of corporate bonds having increased from 3% in 2007 to about 16% in 2019. Notably, as a result of Chinas clampdown on shadow

38、 banking activities, the percentage of loans in total social financing has in fact been on the rise in the past two years.Compared to other economies, Chinas outstanding non-financial corporate bonds as a share of total debt financing (loans and non-financial corporate bonds) for the private sector

39、lags behind that of many developed countries and is lower than the average of major OECD countries, according to data compiled by the Bank for International Settlements HYPERLINK l _bookmark1 (Figure 6). This indicates that there is likely room for bonds to become a more utilised financing instrumen

40、t in China as the trend converges over time with the global norm.Figure 5: Corporate funding mix in China still mostly relies on bank loans (TSF method)100%90%80%70%60%50%40%30%20%10%20072008200920102011201220132014201520162017201820190%Figure 6: Bond financing as of total debt financing (bonds and

41、loans) in the non-financial private sector lags behind many developed countriesCorp bonds/ (corp bonds + loans)50%Average=17%45%40%35%30%25%20%15%10%5%Mexico United StatesChile Korea Israel France Canada NorwayUnited KingdomBelgium Thailand NetherlandsChina Portugal Finland Japan IrelandCzech Republ

42、icItaly Australia Austria Spain Poland Germany0%Corporate loansShadow bankingCorporate bondsEquity financingSource: CEICSource: BIS, World BankThe underlying reasons for such discrepancy are complicated, and could be due to several factors related to history, culture, legal system and so on, and the

43、re appear to be no definitive theories that can explain why a bank-oriented system prevails in an economy rather than a market-oriented model. For example, a paper of the European Central Bank (ECB) in 20051 attributed the higher share of bank finance in the euro area relative to the US to the lower

44、 availability of public information about firms credit worthiness and to higher efficiency of banks in acquiring this information. There is also some research suggesting that this could be due to the legal systems of different countries, such as whether the country adopts a common law system or civi

45、l law system.Regardless, looking ahead we think Chinas bond market will likely continue to see relatively fast growth in the coming years, partly because of the governments push for more direct financing channels in the economy. “Developing a multi-layered1 ECB working paper series No. 546 November

46、2005, Bank Finance Versus Bond Finance what explains the differences between US and Europe?capital market” has been listed as a key policy objective in Chinas annual government work report for the past several years and in the 2020 version the government mentioned that it intends to support corporat

47、es to increase bond financing. With China now opening up its financial sector to more global financial companies, financial institutions capabilities and the sophistication of products and services they offer to clients may also improve due to more competition and overseas know-how. This could help

48、cultivate an environment conducive for more direct financing.Amid such a shift towards direct financing, we think there is more certainty on the increase of equity financing as a percentage of total financing, due to continuing capital accumulation, while the drivers for bond financing are likely mo

49、re complicated. However, we think the relatively low penetration at present does present ample opportunities for growth. In particular, as Chinas bond market is mainly a funding source for SOEs nowadays, we think the private sector may be able to utilise bond financing more as the capital market dee

50、pens, thereby contributing to the growth of total bond financing going forward.In our Oasis scenario as elaborated on in the UBS Q-Series report on Chinas bond market (link), our analysts expect the onshore bond market to grow at a 10% CAGR over the next decade during 2020-30E, partly driven by incr

51、eased overseas inflows due to the inclusion of China onshore bonds into global indices, improving market access, a widening yield gap between China vs developed markets, deregulation of foreign rating agencies, as well as enhancing market liquidity and risk management solutions.In contrast, in our M

52、irage scenario, little disintermediation is assumed to take place in the next decade and bank loans are assumed to remain the primary funding source for Chinas debt. In other words, the gap between these two scenarios represents the incremental change compared to the status quo, if the bond market w

53、ere to outgrow the banking sector going forward. We discuss the potential implications for China banks in such a scenario in the next section of this note.Figure 7: China is opening up its onshore bond market already second largest globallySource: IMF, PBoC, US SIFMA, JSDA, Bank of England, Reserve

54、Bank of Australia, Bank of Korea, Taiwan CBC, Singapore MAS, BISFigure 8: China onshore bond yields have been holding up a lot better than US and AAA-rated Euro zone areaSource: China Bond, ECB, Federal ReserveBelow we summarise the details of each of our potential scenarios regarding the future of

55、Chinas bond market. For details, please see full report: Will opening of a potential US$35trn China bond market support growth in global financials?Oasis scenario: This is our most optimistic scenario wherein we assume both market opening up and deregulation initiatives, as well as market infrastruc

56、ture development are well supportive for onshore bond market growth, with macro and political factors being favourable.We assume that China onshore bonds are included into major global indices. While initial inclusion focuses on rates bonds, we assume credit bonds to be included as well at some poin

57、t. Capital repatriation becomes less of a concern for foreign investors, driven by northbound Bond Connect in the medium term, as well as a combination of overall opening up of the financial system and capital accounts in the longer term.More foreign rating agencies enter and expand in China, such t

58、hat foreign investors are offered more perspectives through an international lens to analyse credit risks of China onshore bonds. Amid improved market access and index inclusion, we assume the China/US yield gap and diversification effect of onshore China bonds attracts substantial foreign inflows.

59、These inflows initially are concentrated in China rates bond, but subsequently also into credit bonds as foreign investors become more comfortable taking on credit risks. We assume US/China tensions remain manageable and do not result in any escalation in monetary war.We assume onshore asset managem

60、ent continues to progress well, such that implicit guarantee for most financial products is removed, including wealth management products issued by commercial banks. Demand for alternative products by households and alternative financing by corporates thus drive development of the financial industry